Cyrus Mistry's sudden sacking from Tata Sons shows Indian cos are still feudal fiefdoms
It is high time the House of Tatas change their functioning to be in sync with globalisation trends and requirements.
Cyrus Mistry's ouster from Tata Sons has once again proved that Indian croporates mostly function like feudal fiefdoms rather than professionally run organisations.
The news about the sacking of Mistry, who was appointed as chairman of the Tata group only in November 2011 after a 14-month intricate selection process, was announced in a terse press release on Monday after market hours.
"Tata Sons today announced that its Board has replaced Cyrus P. Mistry as Chairman of Tata Sons. The decision was taken at a Board meeting held here today.
The Board has named Ratan N. Tata as interim chairman of Tata Sons. The Board has constituted a selection committee to choose a new Chairman. The committee comprises of Ratan N. Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya, as per the criteria in the Articles of Association of Tata Sons. The committee has been mandated to complete the selection process in four months."
The tata.com website has removed every vestige of Mistry -- including the interview he gave to the in-house magazine, which by and large explained his philosophy of governing the large group, and even the details of the Group Executive Council, a council he had set up.
Definitely, a very unceremonious exit for the 48-year-young chairman of the $108 billion salt-to-software conglomerate.
And there are clear indications that a boardroom battle could be brewing between the Tatas and Shapoorji Pallonji Mistry, father of Cyrus Mistry and also the largest individual shareholder of the group.
The news took India Inc and experts by surprise. There were no visible strains in the recent past between the board of Tata Sons and Mistry. So nobody seems to have expected such a sudden development.
“It is surprising and worrisome,” is what Swaminathan Aiyar, consulting editor, at The Economic Times, said about the event.
True, it is worrisome for the simple reason that it shows 25 years into economic liberalisation and embracing of market economy, Indian corporates still continue to behave as if they are in the pre-liberalisation era. Professionalism is yet to be the way of governance for many of them.
According to media reports and sources Firstpost spoke to, there have been differences of opinion between the chairman and the board over many matters, including the style of functioning.
A source told Firstpost that Mistry's micro-management was unlike the manner of functioning of his predecessor, Ratan Tata.
“Ratan Tata is a visionary and he has elevated senior people to the level of Managing Directors of various groups simply because he was able to see they were competent and could do the job. Once he gave them the job, he did not interfere. He empowered his men,” said the source. But Mistry did not favour this style, the source said.
According to a report in The Economic Times, recently there were even important decisions that were taken without consulting the former chairman, Mistry. One such, says the report, was the appointment of Piramal Enterprises' Ajay Piramal and TVS Motor's Venu Srinivasan on board, which is seen as a step towards tightening Tatas' grip on the group's functioning. This reflected "simmering discontent", says the report.
But these happened "behind the scenes". Nobody is privy to this.
The sacking has to be seen in the context of governance philosophies Mistry revealed in his now-removed interview on the group website.
Mistry had said that "challenging situations" confronted by some of the group's businesses require hard and bolder decisions on pruning portfolios.
"It was clear to me relatively early that one needed to confront the challenging situations facing some of our businesses, and ultimately this would entail hard decisions on pruning the portfolio," he said in an interview to the group's in-house magazine.
There is a view that Mistry's move to take hard decisions may have increased the tension between the board and the chairman, which snowballed into his unceremonious ouster.
It is said the old guard at the group did not see Mistry' move as a good strategy.
If, indeed, this is the reason behind the ouster, it contradicts all written and unwritten norms of decency, corporate governance and professional management.
For one, the towering shadows of Ratan Tata and Tata Trusts were always there in the board room.
As an analyst told Firstpost, Ratan Tata is a colossus in the Tata Group. "His shadow looms at Bombay House even in his absence. As chairman emeritus, he is watching over Mistry and that could have been unsettling for him (Mistry)," said the analyst.
So also, the Tata Trusts representatives on the board.
As Rajiv Kumar of Centre for Policy Research says in this article in The Economic Times, "A besieged Mistry, closeted by satraps on one side and the Trust on the other, could well have given the classic CEO ultimatum of 'my way or the highway'."
A report in The Times of India says in the nine-member board, six voted against Mistry and two abstained. Clearly, the Trusts ruled.
So much for the free market and liberal business that Indian corporates demand.
As Rajiv Kumar says, "Even the Japanese Zaibatsus (the pre-World War 2 industrial and financial business conglomerates) or the South Korean chaebols (large family-owned business conglomerates) have changed their functioning to be in sync with globalisation trends and requirements. It is time that Tatas did so as well."
Until then, the Tatas, despite their reputation of being the great torch-bearer of governance, will continue to act like feudal chieftains.
And if Tatas fall off, there is not much hope left for other Indian corporates. And that is indeed worrisome.
The airline will now be on its own and will see its own PSS (Passenger Service System), website and more. The change will have to be communicated to the market and would mean additional expenditure.
With the purchase of Air India, the Tata umbrella will have a capacity share of 40.17 percent in Delhi
From founding the airline to spreading the wings of the Maharaja to Europe in 1948, Air India remained JRD Tata's first love